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IN RE DUPLAN CORP.

July 1, 1979

In re the DUPLAN CORPORATION, Debtor. REALTIES 1430, A Partnership, Objectant,
v.
Alfred P. SLANER, as Reorganization Trustee of the Duplan Corporation, Respondent



The opinion of the court was delivered by: DUFFY

OPINION AND ORDER

In this proceeding Realties 1430, the objectant, (hereinafter referred to as "Realties") attempts to block the assignment by the debtor, The Duplan Corporation, of a lease covering the fourteenth floor of 1430 Broadway in New York City.

The Duplan Corporation originally filed a petition under Chapter XI of the Bankruptcy Act on August 31, 1976. Thereafter, on October 5, 1976, an order was entered directing that the case proceed under Chapter X of the Act and on October 6, 1976, I appointed Alfred P. Slaner as Trustee in the reorganization of Duplan. As part of the reorganization, the Trustee has been disposing of certain subsidiaries of the debtor. One such subsidiary, Andrex Industries Corp., (hereinafter referred to as "Andrex") was sold at auction on June 7, 1979 to Messrs. Levinson and Gottdiener. In connection with this sale, Duplan attempted to assign the lease covering the premises presently occupied by Andrex on the fourteenth floor of 1430 Broadway. Realties objected to the assignment and has also moved for an order declaring that the lease be terminated and that Duplan surrender the premises. In the alternative Realties seeks an order declaring Andrex to be an unacceptable tenant. The Trustee has cross-moved for an order declaring the lease to be in full force and effect and seeks Court approval of the proposed assignment and concomitant assumption. A hearing was held on June 20, 1979. The following shall constitute my findings of fact and conclusions of law.

 At all relevant times Andrex was a wholly-owned subsidiary of Duplan. In June and September 1976, both Duplan and Andrex entered into separate leases covering certain commercial space located at 1430 Broadway in New York City. The then landlord, 1430 Equities, Inc., leased the entire nineteenth floor of 1430 to Andrex for a term of ten years at an annual rental of $ 81,000,000. The lease with Duplan covers the entire fourteenth floor of 1430 and also runs for a ten-year period at an annual rental of $ 113,400. Thereafter, in April of 1978, the corporate landlord was adjudicated a bankrupt and the building was operated by the Trustee in Bankruptcy, Richard Lieb, until March 1979 when 1430 Broadway was sold to Realties 1430. In August of 1978, Andrex entered into a lease termination agreement with the Trustee of 1430 whereby Andrex's lease covering the nineteenth floor was terminated. Ten months prior to this formal termination agreement, however, Andrex had moved its operations to the fourteenth floor and has at all times since this move operated from the fourteenth floor of 1430.

 Having sold the stock of Andrex, Duplan now seeks to assign the commercial lease covering the fourteenth floor to the purchasers of Andrex. The landlord objects and argues that by permitting Andrex to occupy the fourteenth floor without first obtaining the express written consent of the landlord, the lease has been breached and is thereby terminated. Thus, the landlord urges that Duplan has nothing to assign. Alternatively, the landlord argues that even if the lease is not terminated, to permit Andrex to assume the lease would cause it irreparable harm. In particular, Realties 1430 argues that Andrex is a financially irresponsible tenant and such a tenant should not be foisted upon the landlord. I find neither argument compelling and hold that the lease in issue may be assigned to and assumed by Andrex.

 The lease provides:

 
Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns, expressly covenants that it shall not assign, mortgage or encumber this agreement, nor underlet, or suffer or permit the demised premises or any part thereof to be used by others, without the prior written consent of Landlord in each instance. If this lease be assigned, or if the demised premises or any part thereof be underlet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, under-tenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, under-tenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. The consent by Landlord to an assignment or underletting shall not in any wise be construed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or underletting.

 Trustee's Exhibit 2 at P 11.

 It further provides that:

 
(1) If Tenant defaults in fulfilling any of the covenants of this lease . . . upon Landlord serving a written five (5) days notice upon Tenant specifying the nature of said default and upon the expiration of said five (5) days, if Tenant shall have failed to comply with or remedy such default, or if the said default or omission complained of shall be of a nature that the same cannot be completely cured or remedied within said five (5) day period, and if Tenant shall not have diligently commenced curing such default within such five (5) day period, and shall not thereafter with reasonable diligence and in good faith proceed to remedy or cure such default, then Landlord may serve a written three (3) days' notice of cancellation of this lease upon Tenant, and upon the expiration of said three (3) days, this lease and the term thereunder shall end and expire as fully and completely as if the expiration of such three (3) day period were the day herein definitely fixed for the end and expiration of this lease and the term thereof and Tenant shall then quit and surrender the demised premises to Landlord but Tenant shall remain liable as hereinafter provided.

 It is clear that at no time (either before or after the occupation of the fourteenth floor by Andrex) did Duplan ever obtain the written consent of 1430 Equities, the Trustee Richard Lieb or Realties 1430 authorizing the Andrex move. It is also clear that by letters dated April 20 and May 10, 1979, Realties 1430 notified Duplan that it was in breach and the landlord had elected to terminate the lease pursuant to P 17 thereof.

 It would appear, therefore, that under the literal terms of the lease agreement, Duplan was in breach and the landlord properly entitled to possession of the premises. Duplan charges, however, that by letter dated August 31, 1977 the landlord had actual notice of Andrex's move from the nineteenth to the fourteenth floor. In addition, Duplan asserts that quite apart from the letter, the Andrex move was so open and notorious that the landlord could not help but to have had actual notice of the move. Duplan argues that the landlord's conduct, knowingly accepting rent while never objecting to the move prior to the instant assignment, constituted a waiver of the covenant in issue. Duplan concludes that in light of this waiver the landlord cannot now attempt to employ the forfeiture provision to terminate the lease.

 As a general rule, courts do not look favorably upon the use of forfeiture clauses in leases. Finn v. Meighan, 325 U.S. 300, 301, 65 S. Ct. 1147, 89 L. Ed. 1624 (1945). Accordingly, upon a breach courts will deem a forfeiture provision waived when by his conduct a landlord evinces "an intent to treat the lease as continuing rather than as terminated." BJM Realty Corp. v. Ruggieri, 326 F.2d 281, 282 (2d Cir. 1964). This intent to waive the benefits of a forfeiture clause is most often inferred from the acceptance of rent which accrues after the lessees breach. Id. at 283 and cases cited therein. This is true even where the lease, as in the case at bar, expressly provides that the acceptance of rent after the breach does not constitute a waiver of the forfeiture provision. Geraghty v. Kiamie Fifth Avenue Corp., 210 F.2d 95 (2d Cir. 1954). It is, in the final analysis, a question of intent.

 Realties argues that it did not become aware of the Andrex move until April, 1979 at which time it promptly notified Duplan of the breach and its intent to terminate the lease. It concludes, therefore, that its conduct prior to the actual notice of the Andrex move is legally irrelevant in establishing a waiver of the forfeiture clause. Moreover, its conduct upon receiving actual ...


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